Budget 2016: A big test for Osborne
“Normally, the budget is its own backdrop,” a cabinet member has been quoted as saying. “But this time there is something bigger going on.”
Indeed, it’s hard to recall a Budget in recent years so entrenched in political and economic turmoil. With the daggers from both sides in the EU Referendum debate very much about, many Eurosceptics are pre-empting George Osborne using Wednesday’s showpiece as a political game – if not in a bid to directly undermine those campaigning for Brexit, then at least as a means to discredit his main rival Boris Johnson.
Conservative infighting and the raging Europe debate aside, the Chancellor has also been outspoken in the build-up about the current uncertainty within the global economy, and re-iterated his intention to address the deficit in the short-term with further spending cuts. Yet it is agonisingly at odds with his burning desire to occupy the political centre ground, and also the proposed Labour economic manifesto of ‘spending to save’ compiled by John McDonnell.
Either way, there remains a degree of mystery as to where Osborne plans to find the £4 billion in savings he is seeking. We’ve highlighted a couple of areas which are under threat from the axe…
It now appears almost certain that disability benefit will be cut, with the Chancellor stating on the Andrew Marr Show that the benefit “needs to be managed properly so the money goes to the people who need it most.” In fact, Government announced last week that it plans to cut £1.2 billion in disability benefit for nearly 650,000 people by 2020. Yet with Iain Duncan Smith’s controversial ‘fit-for-work’ assessments still fresh in the mind of many, the disabled seems, from a political point of view, to be a high-risk demographic to target for Tory cuts.
Pension tax relief
Until a week ago, it had seemed almost certain that Osborne would be looking to boost the coffers with a raid on pension tax relief for high earners – either via a flat-rate level of relief for all savers of around 30%, or indeed limiting relief on contributions to the 20% that is currently enjoyed by basic-rate taxpayers. However, uproar from the backbenches appears to have stopped such a plan – which undoubtedly would have been a money spinner for the Treasury – very much in its tracks. So will pensions be spared? This time around, perhaps. But one can’t help but feel that pensions will have an X on their back for the duration of this parliament.
The plunge in oil prices is generally good for the consumer, but the Treasury – whose tax revenues come at a percentage rate – effectively lose out. It may be an unpopular target, but given that fuel duty has been frozen for a number of years and the downward curve in oil price, raising taxes may well be a decision Osborne feels he can justify.
What else can we expect?
If fuel duty is left alone, it is expected that motor insurance and road tax will be targeted. In addition, rumours of an increase in taxation on home insurance and even sin tax are rife, while some believe the Chancellor may consolidate his plans to take more revenues from the banks in the wake of the new surcharge he unveiled at last year’s Summer Budget. A popular decision with the public, perhaps, but it’s fair to assume there will be a backlash from the powerful banking sector should he go down this route.
On the other side of the coin, the possibility exists that the amount earned before higher-rate tax is paid may be increased significantly from its current £42,385. Wednesday should also present the opportunity for more detailed information and clarification on the implementation of the incoming National Living Wage, increased stamp duty on second homes, Help to Save and perhaps even the Innovative Finance ISA.
No doubt there will be a typical rabbit to emerge from Osborne’s red briefcase at some point too, but it’s hard to shake the feeling that this won’t be a Budget characterised by appeasing sweeteners. Certainly, it was our feeling that his claim of a ‘new-found £27 billion to spend’ at the Autumn Statement was dubious, so - counterintuitively perhaps - it would surely be in his interests for Wednesday’s address to be something of a non-event.
Indeed, the Chancellor may do well to heed his own advice, and not tamper with the status quo too much. True, his rivals and opponents will be circling as they look to poke holes and oblige their own agendas. But with Britain’s future as ostensibly uncertain as Osborne himself articulates, this is no time for radical reform. If the axe must fall, may it be discreetly, but rather than being a platform for political games, may this be a Budget that alleviates some of the unnerving discontent already facing savers and investors.
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- Your updated guide to Innovative Finance ISAs
- The experts' view of our economy in 2016
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